Expert Opinion

Published: Dec 29, 2021
Updated: Dec 29, 2021

STOCK MARKETS: Corona can still nix markets

CRISIL upgraded India Inc’s credit quality outlook in line with continued improvements in demand on August 18, 2021 from ‘cautiously optimistic’ to ‘positive.’ As a result of the coronavirus pandemic, there has been a setback in Q1FY 22. Increased vaccination coverage should also reduce the impact of the third wave, if it occurs. As per CRISIL, the outlook revision factor is determined by strong economic growth, domestically and globally.

In light of this situation, it is necessary to inquire whether Indian investors were deaf to the prospect of a third wave. This question spirals deeper and deeper each time we make a 52-week high, and another new corona case is filed everyday across the globe. Investors need to remember that while markets tend to move upwards, a piece of single negative news can trigger a correction with twice the intensity and wipe out investments. While we should not underestimate markets, a third wave is not impossible. While the pace of industry recovery and vaccination is improving, the ultimate deciding factor is the intensity of the third wave and how investors react to it when and if it occurs. With Kabul falling into the Taliban’s hands, Wall Street strategists and investors are keenly watching the chaotic scenes in Afghanistan but say the situation may change after a short period. According to the Federation of Indian Export Organisations (FIEO), trade between India and Afghanistan will be adversely affected in these uncertain times. When considering the political situation in Afghanistan, domestic exporters should exercise caution, particularly concerning payments, for which they can obtain adequate credit insurance. In the short term, bilateral trade will decrease dramatically, but it may not be all lost since the Afghans need our products.

CRUDE’ FACTOR

Brent’s price is down 11% since August 2021, despite crude oil’s 48% surge in the first half of the year. This is primarily due to the rapid spread of the Delta variant worldwide, causing mobility restrictions and affecting demand, which combines with an increase in production of 400,000 barrels a day by the OPEC-Plus starting in August 2021.

A shooting star candlestick pattern formed on the Nifty 50 index for the week and indicates that it closed mildly negative for the week ending August 20, 2021. Even though the Nifty has outperformed developed and emerging market indices, a shooting star candle hints at a mild retracement toward the short-term average levels. However, caution is required going forward, as any break below the 16,200 level indicate further weakness.

The markets are expected to remain buoyant despite a mild retracement based on technicals. In addition, investors can use the monthly expiry’s rollover data to gauge confidence in momentum and estimate the march to fresh highs in September 2021. Additionally, the US GDP whose announcement is expected in the coming days may influence market sentiment globally. Hence, picking fundamentally stable stocks is the best strategy for investors.

(Dr VVLN Sastry is a post doctorate in Economics and a PhD in Law & Public Policy. He is a passionate economist, financial analyst and law expert.)